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An "incentive subsidy" policy for subsidizing private R & D is proposed that can be more efficient, from a social point of view, than subsidy policies in common use such as a "normal" subsidy policy (fixed amount granted at project start), and conditional loans (loan is repaid only if project is...

Government subsidized industrial R & D stands for a large and increasing segment of the total R & D conducted. Yet very little is known about the effectiveness of such subsidies. This paper summarizes the empirical literature concerning direct project subsidies, tax credits, and support for...